RAK
23/05/2013 08:57
FLLYR
REL: 0857 HRS Rakon Limited
FLLYR: RAK: Preliminary Announcement FY13 RAKON
Rakon Limited
Results for announcement to the market
Reporting period Year ended 31st March 2013
Previous reporting period Year ended 31st March 2012
Amount NZ$000 % Change
Revenue from ordinary activities 176,259 -1%
Earnings before interest, tax, depreciation, amortisation, impairment & share
based payments 5,054 a -61%
Earnings before interest & tax (28,452) b -6028%
Net (loss)/profit after tax (32,821) b -7715%
Note a: includes share of EBITDA from associates and joint ventures of
NZ$4,110,000 (2012: $3,024,000).
b: includes equity accounted earnings of NZ$1,280,000 (2012: $925,000).
Amount per security Imputed amount per security
Interim / Final Dividend Nil Nil
Record Date Not Applicable Not Applicable
Dividend Payment Date Not Applicable Not Applicable
Comments
Rakon Limited (NZX: RAK) reports a full year net loss after tax of $NZ32.8m.
This number results from a look-through trading EBITDA of NZ$7.2m, which was
adjusted lower to NZ$5.1m after stock provisions of NZ$2.1m.
Further an impairment charge of NZ$17.3m has been recorded against the
goodwill of Rakon's China-Timemaker and New Zealand 'cash generating units'
(CGU). Recent market prices in the smart wireless device segment, when
projected forward result in a reduction in 'value-in-use' calculations no
longer supporting previous valuations for goodwill.
The company's underlying revenue is predominantly transacted in US$ and in
US$ terms revenue was in line with the previous year. Brent Robinson, Rakon
Managing Director, said that while volumes had grown significantly in the
smart wireless device market and Rakon had achieved growth in market share,
the underlying product margins reduced compared to the previous year. The
devaluation of the Yen over the second half resulted in intense price
competition coming from Rakon's Japanese based competitors in the smart
wireless device market.
The company's operating cash flow of NZ$(2.7m), down NZ$0.5m over the second
half (HY2013: NZ$(2.2m)), reflected an improvement in working capital through
a significant focus on reductions in inventory.
EBITDA from Rakon's India Joint Venture of $3.6m compares with $1.9m for the
previous year. Commenting on this improvement, Mr Robinson said the increase
reflected fourth quarter growth in the telecommunications market, where
Rakon's exceptionally strong product offering in 4G and market positioning
were starting to show the early signs of growth that Rakon had been expecting
for some time from the telecommunications infrastructure market.
During the year under review Rakon's Board has been reviewing various plans
to ensure that the firm's balance sheet is properly aligned to market
opportunities and solid profit growth. The final plan will be available and
released to the market in July. The Board has set an objective to reduce the
debt below $15m.
Operating costs for the year of NZ$59.6m are slightly up compared to the
previous year (FY2012: $NZ59.0m), reflecting a full year impact of costs
associated with Rakon's JV plant in China. During the year the Rakon Board of
Directors initiated cost savings initiatives that were implemented in line
with plans. The reduction in product margins over second half has further
required the Directors and Management to look hard at the underlying cost
structure of its global business. A project of reorganisation has been
initiated in France with workers councils post balance date. Rakon expects to
report on the outcome of that project in coming months after consultations
with workers councils are completed.
Mr Robinson said that Rakon's expectations for FY2014 are for a continuation
of the competitive trading environment in the smart wireless device segment.
Due to the global roll-out of 4G Rakon expects to continue market share
growth in telecommunications.
Directors Declaration (NZX Listing Rules Appendix 1, 3.1 & 3.2)
The Directors declare that the selected consolidated financial information on
pages 3 to 20 has been prepared in compliance with applicable Financial
Reporting Standards and extracted from audited financial statements. The
auditors have issued an unqualified opinion on the financial statements. The
accounting policies the Directors consider critical to the portrayal of the
company's financial condition and results which require judgements and
estimates about matters which are inherently uncertain are disclosed in note
2.17 of the financial statements that form part of this announcement.
Statements of Comprehensive Income
For the year ended 31 March 2013
The accompanying notes form an integral part of these financial statements.
Statements of Changes in Equity
For the year ended 31 March 2013
The accompanying notes form an integral part of these financial statements.
Balance Sheets
As at 31 March 2013
The accompanying notes form an integral part of these financial statements.
Statements of Cash Flows
The accompanying notes form an integral part of these financial statements.
Statements of Cash Flows
The accompanying notes form an integral part of these financial statements.
Notes to the Financial Statements
1. General information
Rakon Limited ("the Company") and its subsidiaries (together "the Group") is
a world leader in the development of frequency control solutions for a wide
range of applications. Rakon has leading market positions in the supply of
crystal oscillators to the GPS, telecommunications network
timing/synchronisation, and aerospace markets.
The Company is a limited liability company incorporated and domiciled in New
Zealand. It is registered under the Companies Act 1993 with its registered
office at One Pacific Rise, Mt Wellington, Auckland. The Company is an
issuer in terms of the Securities Act 1978 and is listed on the New Zealand
Stock Exchange.
These financial statements have been approved for issue by the Board of
Directors on 23 May 2013.
2. Summary of significant accounting policies
2.1. Basis of preparation
These financial statements of the Group and Parent, profit oriented entities,
are for the year ended 31 March 2013. They have been prepared in accordance
with the requirements of the Financial Reporting Act 1993, the Companies Act
1993 and in accordance with New Zealand Equivalents to International
Financial Reporting Standards ("NZ IFRS").
The financial statements have been prepared in accordance with NZ GAAP.
Accounting policies applied in these financial statements comply with NZ IFRS
and New Zealand equivalents to International Financial Reporting
Interpretations Committee ("NZ IFRIC") interpretations issued and effective
or issued and early adopted as at the time of preparing these financial
statements as applicable to Rakon Limited as a profit oriented entity. The
financial statements of the Group and Parent are in compliance with
International Financial Reporting Standards ("IFRS").
The accounting principles recognised as appropriate for the measurement and
reporting of profit and loss and financial position on an historical cost
basis have been applied, except for derivative financial instruments and
available for sale investments, which have been measured at fair value.
The preparation of financial statements in accordance with NZ IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates, refer to
note 2.17.
The Group has adopted the following new and amended NZ IFRSs of relevance to
the Group and Company as of 1 April 2013:
NZ IAS 1, Amendments Presentation of Items of Other Comprehensive Income
(effective 1 July 2012) requires entities to separate items presented in
other comprehensive income into two groups, based on whether they may be
recycled to profit or loss in the future. This does not affect the
measurement of any of the items recognised in the balance sheet or the profit
or loss in the current period.
NZ IAS 12, Income Taxes and FRS 44, New Zealand Additional Disclosures
(mandatory for periods beginning on or after 1 July 2011) requires imputation
credits which are available for use in subsequent reporting periods to be
reported on an accruals rather than a cash basis. Movements in the
Imputation Credit Account no longer need to be disclosed.
FRS 44 New Zealand Additional Disclosures and Harmonisation Amendments
(effective for reporting periods staring after 1 July 2011) sets out New
Zealand specific disclosures for entities that apply NZ IFRSs. These
disclosures have been relocated from NZ IFRSs to clarify that these
disclosures are additional to those required by IFRSs. Adoption of the new
rules will not affect any of the amounts recognised in the financial
statements, but may simplify some of the group's current disclosures. The
Harmonisation Amendments amends various NZ IFRSs for the purpose of
harmonising with the source IFRSs and Australian Accounting Standards. The
significant amendments include:
o deletion of the requirement for an independent valuer to conduct the
valuation of investment property and property, plant and equipment;
o inclusion of the option to account for investment property using
either cost or fair value model;
o introduction of the option to use the indirect method of reporting
cash flows that is not currently in NZ IAS 7.
In addition, various disclosure requirements have been deleted.
NZ IFRS 12, Deferred Tax- Recovery of underlying assets (effective 1 January
2012) requires the measurement of deferred tax assets or liabilities to
reflect the tax consequences that would follow from the way management
expects to recover or settle the carrying of the relevant assets or
liabilities, that is through use or through sale and introduces a rebuttable
presumption that investment property which is measured at fair value is
recovered entirely by sale.
2.2. Consolidation
2.2.1. Subsidiaries
Subsidiaries are entities that are controlled, either directly or indirectly,
by the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as
to obtain benefits from its activities. In assessing control, potential
voting rights that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until
the date that control ceases.
Business combinations are accounted for using the acquisition method. The
consideration transferred in a business combination shall be measured at fair
value, which shall be calculated as the total of the acquisition date fair
values of the assets transferred by the Group, the liabilities incurred by
the Group to former owners, the equity issued by the Group and the amount of
any non-controlling interest in the acquiree either at fair value or at the
proportional share of the acquiree's identifiable net assets. Acquisition
related costs are expensed as incurred and included in other gains/(losses) -
net.
All material transactions between subsidiaries or between the Parent Company
and subsidiaries are eliminated on consolidation.
Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the group
2.2.2. Associates
Associates are entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of
the voting rights. Investments in associates are accounted for using the
equity method of accounting and are initially recognised at cost. The
Group's investment in associates includes goodwill identified on acquisition,
net of any accumulated impairment loss.
The Group's share of its associates' post-acquisition profits or losses is
recognised in the statement of comprehensive income, and its share of
post-acquisition movements in reserves is recognised in reserves. The
cumulative post-acquisition movements are adjusted against the carrying
amount of the investment. When the Group's share of losses in an associate
equals or exceed its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are
eliminated to the extent of the Group's interest in the associates.
Unrealised losses are also eliminated unless the transaction provides
evidence of impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the
policies adopted by the Group.
2.2.3. Joint ventures
The Group's interests in jointly controlled entities are accounted for using
the equity method of accounting and are initially recognised at cost. The
Group's investment in jointly controlled entities includes goodwill
identified on acquisition, net of any accumulated impairment loss.
The Group's share of its joint ventures' post-acquisition profits or losses
is recognised in the statement of comprehensive income, and its share of
post-acquisition movements in reserves is recognised in reserves. The
cumulative post-acquisition movements are adjusted against the carrying
amount of the investment.
Unrealised gains on transactions between the Group and its joint ventures are
eliminated to the extent of the Group's interest in the joint venture.
Unrealised losses are also eliminated unless the transaction provides
evidence of impairment of the asset transferred. Accounting policies of
joint ventures have been changed where necessary to ensure consistency with
the policies adopted by the Group.
2.3. Foreign currency translation
2.3.1. Functional and presentation currency
Items included in the financial statements of each entity in the Group are
measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity (the "functional
currency"). The consolidated financial statements are presented in New
Zealand dollars, (the "presentation currency"), which is the functional
currency of the Parent.
2.3.2. Transactions and balances
Transactions in foreign currencies are translated at the foreign exchange
rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
New Zealand dollars at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the statement
of comprehensive income, within other gains/(losses) - net, except when
deferred in other comprehensive income as qualifying cash flow hedges and
qualifying net investment hedges. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Non-monetary assets
and liabilities denominated in foreign currencies that are stated at fair
value are translated to New Zealand dollars at foreign exchange rates ruling
at the dates the fair value was determined.
2.3.3. Group companies
The assets and liabilities of all of the Group companies (none of which has a
currency of a hyper-inflationary economy) that have a functional currency
that differs from the presentation currency, including goodwill and fair
value adjustments arising on consolidation, are translated to New Zealand
dollars at foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of these foreign operations are translated to New
Zealand dollars at rates approximating to the foreign exchange rates ruling
at the dates of the transactions.
Exchange differences arising from the translation of foreign operations are
recognised in the foreign currency translation reserve and borrowings and
other currency instruments designated as hedges of such investments are taken
to shareholders' equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and are
translated at the foreign exchange rates ruling at the balance sheet date.
2.4. Share capital
Ordinary shares and redeemable ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases the company's equity share capital (Rakon
Restricted Share Plan), the consideration paid, including any directly
attributable incremental costs (net of income taxes) is deducted from equity
attributable to the company's equity holders until the shares are cancelled
or reissued. Where such ordinary shares are subsequently reissued, any
consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, and is included in
equity attributable to the company's equity holders.
2.5. Property, plant and equipment
2.5.1. Initial recording
Items of property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses. The cost of purchased property, plant
and equipment is the value of the consideration given to acquire the assets
and the value of other directly attributable costs, which have been incurred
in bringing the assets to the location and condition necessary for their
intended service. Where parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate items of
property, plant or equipment.
2.5.2. Subsequent costs
The entity recognises in the carrying amount of an item of property, plant or
equipment the cost of replacing part of such an item when that cost is
incurred only when it is probable that the future economic benefits embodied
with the item will flow to the entity and the cost of the item can be
measured reliably. All other costs are recognised in the statement of
comprehensive income as an expense as incurred.
2.5.3. Depreciation
Depreciation of property, plant and equipment, other than freehold land, is
calculated on a straight line basis so as to expense the cost of the assets
to their expected residual values over their useful lives as follows:
Land Nil
Buildings 5 - 10%
Leasehold improvements 20 - 36%
Computer hardware 10 - 60%
Plant and equipment 5 - 50%
Motor vehicles 20 - 25%
Furniture and fittings 5 - 50%
Assets under course of construction Nil
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance date.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised within "other gains/(losses) - net" in
the statement of comprehensive income.
2.6. Leases
The entity is the lessee
Leases where the lessor retains substantially all the risk and rewards of
ownership are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to the
statement of comprehensive income on a straight-line basis over the period of
the lease.
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at
the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are recognised in finance costs in profit or loss.
Capitalised leased assets are depreciated over the shorter of the estimated
useful life of the asset and the lease term if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term.
2.7. Intangible assets
2.7.1. Goodwill
Goodwill acquired in a business combination is initially measured at cost of
the business combination being the excess of the consideration transferred
over the fair value of the Group's net identifiable assets acquired and
liabilities assumed. If this consideration transferred is lower than the
fair value of the net identifiable assets of the acquired subsidiary,
associate or joint venture, the difference is recognised in profit or loss.
Goodwill on acquisitions of subsidiaries is included in intangible assets.
Goodwill on acquisition of associates and joint ventures is included in
"investment in associates/interest in joint ventures" and is tested for
impairment as part of the overall balance.
Separately recognised goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses. Impairment losses on goodwill are
not reversed. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units or groups of
cash-generating units that are expected to benefit from the business
combination in which the goodwill arose.
2.7.2. Patents, trademarks, licenses and software
Identifiable intangible assets that are acquired by the Group are stated at
cost less accumulated amortisation and impairment losses. Subsequent
expenditure on intangible assets is capitalised only when it increases the
future economic benefits embodied in the specific asset to which it relates.
All other expenditure is expensed as incurred.
Expenditure on internally generated goodwill and brands is recognised in the
statement of comprehensive income as an expense as incurred.
Amortisation is charged to the statement of comprehensive income on a
straight-line basis over the estimated useful lives of intangible assets
unless such lives are indefinite. Acquired patents and licenses are
amortised over their anticipated useful lives of 3-20 years.
Software assets, licences and capitalised costs of developing systems are
recorded as intangible assets and amortised over a period of 3-10 years
unless they are directly related to a specific item of hardware and recorded
as property, plant and equipment.
2.7.3. Research and development
Expenditure on research activities, undertaken with the prospect of gaining
new scientific or technical knowledge and understanding, is recognised in the
statement of comprehensive income as an expense as incurred. Any research
and development taxation credits are recognised when eligibility criteria
have been met and are treated as a reduction in expenses. Government grant
funding for research and development is recognised when eligible criteria
have been met and is recognised as other operating income.
Expenditure on development activities, whereby research findings are applied
to a plan or design for the production of new or substantially improved
products and processes, is capitalised if the product or process is
technically and commercially feasible and the entity has sufficient resources
to complete development. Other development expenditure is recognised in the
statement of comprehensive income as an expense as incurred.
2.8. Inventories
Inventories are stated at the lower of cost (weighted average cost) or net
realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and
selling expenses.
2.9. Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets are reviewed at each
balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is
estimated being the higher of an asset's fair value less costs to sell and
the asset's value in use. An impairment loss is recognised whenever the
carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised in the statement of
comprehensive income.
For goodwill the recoverable amount is estimated at each balance sheet date.
Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated to
cash-generating units (group of units) and then, to reduce the carrying
amount of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been
recognised.
2.10. Financial instruments
Financial instruments comprise cash and cash equivalents, trade and other
receivables, trade and other payables, borrowings and derivative financial
instruments (forward foreign exchange contracts, forward foreign exchange
options, zero cost collars, interest rate swaps).
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument. Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or have been transferred and the
group has transferred substantially all risks and rewards of ownership.
2.10.1. Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits, other short
term, highly liquid investments with original maturities of three months or
less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and bank overdrafts.
Bank overdrafts are shown within borrowings in current liabilities on the
balance sheet.
2.10.2. Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment.
Collectability of trade receivables is reviewed on an ongoing basis. Debts
which are known to be uncollectable are written off. A provision for
impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according
to the original terms of receivables. The amount of the provision is the
difference between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the effective interest rate. The
amount of the provision is recognised in the statement of comprehensive
income.
2.10.3. Classification of financial assets
The Group classifies its financial assets in the following categories:
financial assets at fair value through profit or loss, loans and receivables.
The classification depends on the purpose for which the financial assets
were acquired. Management determines the classification of its financial
assets at initial recognition and re-evaluates this designation at each
reporting date.
1. Financial assets at fair value through profit or loss
This category has two sub categories: financial assets held for trading, and
those designated at fair value through profit or loss on initial recognition.
For accounting purposes, derivatives are categorised as held for trading
unless they are designated as hedges. Assets in this category are classified
as current assets if they are either held for trading or are expected to be
realised within 12 months of the balance sheet date.
2. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise
when the Group provides money, goods or services directly to a customer with
no intention of selling the receivable. They are included in current assets,
except for those with maturities greater than 12 months after the balance
sheet date which are classified as non-current assets. The Group's loans and
receivables comprise 'trade and other receivables' and 'cash and cash
equivalents' in the balance sheet.
Purchases and sales of financial assets are recognised on trade-date - the
date on which the Group commits to purchase or sell the asset. Financial
assets at fair value through profit and loss are carried at fair value.
Loans and receivables are carried at amortised cost using the effective
interest method. Realised and unrealised gains and losses arising from
changes in the fair value of the 'financial assets at fair value through
profit or loss' category are included in the statement of comprehensive
income in the period in which they arise.
The Group establishes fair value by using valuation techniques. These
include reference to the fair values of recent arm's length transactions,
involving the same instruments or other instruments that are substantially
the same, and discounted cash flow analysis.
The Group assesses at each balance date whether there is objective evidence
that a financial asset or group of financial assets is impaired. Impairment
testing of trade receivables is described above.
2.10.4. Trade and other payables
Trade and other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method.
2.10.5. Interest bearing borrowings
Interest bearing borrowings are recognised initially at fair value, net of
transaction costs incurred. Subsequent to initial recognition, interest
bearing borrowings are measured at amortised cost with any difference between
the proceeds (net of transaction costs) and the redemption amount recognised
in the statement of comprehensive income over the period of the borrowings
using the effective interest method. Arrangement fees are amortised over the
term of the loan facility. General and specific borrowing costs directly
attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time
to get ready for their intended use, are added to the cost of those assets
until such time as the assets are substantially ready for their intended use
other borrowing costs are expensed when incurred.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12
months after the balance sheet date.
2.10.6. Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to
foreign exchange and interest rate risks. The Group does not hold or issue
derivative financial instruments for trading purposes. However, derivatives
that do not qualify for hedge accounting are accounted for as trading
instruments.
Derivative financial instruments are initially recognised at fair value on
the date a derivative contract is entered into and are re-measured at their
fair value at subsequent reporting dates. The method of recognising the
resulting gain or loss depends on whether the derivative is designated as a
hedging instrument and, if so, the nature of the item being hedged. The
Group designates certain derivatives as hedges of a particular risk
associated with a recognised liability or a highly probable forecast
transaction (cash flow hedge).
The Group documents, at the inception of the transaction, the relationship
between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedging transactions. The
Group also documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of
hedged items.
The full fair value of a hedging derivative is classified as a non-current
asset or liability when the remaining maturity of the hedged item is more
than 12 months; it is classified as a current asset or liability when the
remaining maturity of the hedged item is less than 12 months. Trading
derivatives are classified as a current asset or liability.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in the statement of comprehensive income within other
gains/(losses) - net.
Amounts accumulated in equity are recycled in the statement of comprehensive
income in the periods when the hedged item affects profit or loss (for
example, when the forecast sale that is hedged takes place). The gain or loss
relating to the effective portion of interest rate swaps hedging variable
rate borrowings is recognised in the statement of comprehensive income within
finance costs. The gain or loss relating to the effective portion of forward
foreign exchange contracts hedging export sales is recognised in the
statement of comprehensive income within sales. The gain or loss relating to
the effective portion of forward foreign exchange contracts hedging raw
materials purchases is recognised in the statement of comprehensive income
within cost of sales.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the statement of comprehensive
income. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately
transferred to the statement of comprehensive income within other
gains/(losses) - net.
Certain derivative instruments do not qualify for hedge accounting. Changes
in the fair value of any derivative instrument that does not qualify for
hedge accounting are recognised immediately in the statement of comprehensive
income within other gains/(losses) - net.
2.11. Fair value estimates
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure purposes.
The fair value of financial instruments that are not traded in an active
market is determined using valuation techniques. The Group uses a variety of
methods and makes assumptions that are based on market conditions existing at
each balance date. Techniques, such as estimated discounted cash flows, are
used to determine fair value for financial instruments. The fair value of
forward exchange contracts is determined using forward exchange market rates
at the balance sheet date.
The nominal value less estimated credit adjustments of trade receivables and
payables are assumed to approximate their fair values. The fair value of
financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is
available to the Group for similar financial instruments.
2.12. Employee entitlements
2.12.1. Long term employee benefits
The Group's net obligation in respect of long service leave and the French
retirement indemnity plan is the amount of future benefit that employees have
earned in return for their service in the current and prior periods. The
obligation is calculated using the projected unit credit method and is
discounted to its present value and the fair value of any related assets is
deducted. The French retirement indemnity plan entitles permanent French
employees to a lump sum on retirement. The payment is dependent on an
employee's final salary and the number of years of service rendered.
2.12.2. Short term employee benefits
Employee entitlements to salaries and wages and annual leave, to be settled
within 12 months of the reporting date represent present obligations
resulting from employee's services provided up to the reporting date,
calculated at undiscounted amounts based on remuneration rates that the
entity expects to pay.
2.12.3. Share based plans
The Group's management awards qualifying employees bonuses in the form of
share options and conditional rights to redeemable ordinary shares, from time
to time, on a discretionary basis. These are subject to vesting conditions
and their fair value is recognised as an employee benefit expense with a
corresponding increase in other reserve equity over the vesting period. The
fair value determined at grant date excludes the impact of any non-market
vesting conditions, such as the requirement to remain in employment with the
entity. Non-market vesting conditions are included in the assumptions about
the number of options that are expected to vest and the number of redeemable
ordinary shares that are expected to transfer. At each balance sheet date
the estimate of the number of options expected to vest and the number of
redeemable ordinary shares expected to transfer is revised and the impact of
any change in this estimate is recognised in the statement of comprehensive
income with a corresponding entry to equity. The proceeds received net of
any directly attributable transaction costs are credited to share capital
when the options are exercised or the conditional rights to redeemable
ordinary shares are transferred.
2.12.4. Superannuation schemes
The Group's NZ and overseas operations participate in their respective
government superannuation schemes whereby the Group is required to pay fixed
contributions into a separate entity. The Group has no legal or constructive
obligations to pay further contributions if the fund does not have sufficient
assets to pay all employees the benefits relating to the employee service in
the current and prior periods. The Group has no further payment obligations
once the contributions have been paid. The contributions are recognised as
employee benefit expense when they are due.
2.13. Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the
obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate,
the risks specific to the liability.
2.14. Revenue
2.14.1. Goods sold and services rendered
Revenue comprises the fair value of amounts received and receivable by the
Group for goods and services supplied in the ordinary course of business.
Revenue is stated net of Goods and Services Tax collected from customers.
Revenue from the sale of goods is recognised in the statement of
comprehensive income when the significant risks and rewards of ownership have
been transferred to the buyer and the amount can be measured reliably.
Revenue from services rendered is recognised in the statement of
comprehensive income in proportion to the stage of completion of the
transaction at the balance sheet date.
2.14.2. Interest income
Interest income is recognised in the statement of comprehensive income as it
accrues, using the effective interest method.
2.14.3. Dividend income
Dividend income is recognised when the right to receive payment is
established.
2.14.4. Royalty income
Royalty income is recognised on an accruals basis in accordance with the
substance of the relevant agreements.
2.14.5. Government grants
Government grants related to an expense item are recognised as income when
the right to receive payment has been met. The income is recognised within
other operating income in the statement of comprehensive income.
2.15. Income tax
Income tax on the profit or loss for the periods presented comprises current
and deferred tax. Income tax is recognised in the statement of comprehensive
income except to the extent that it relates to items recognised directly in
other comprehensive income, in which case it is recognised in other
comprehensive income.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates enacted or substantially enacted at the balance sheet date,
and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. The following temporary differences are not provided for:
goodwill not deductible for tax purposes, the initial recognition of assets
or liabilities that affect neither accounting nor taxable profit, and
differences relating to investments in subsidiaries, associates and joint
ventures to the extent that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
A deferred tax asset shall be recognised for the carry forward of unused tax
losses and unused tax credits to the extent that it is probable that future
taxable profit will be available against which the unused tax losses and
unused tax credits can be utilised.
2.16. Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief
operating decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the
Managing Director, Marketing Director and Chief Financial Officer.
2.17. Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, rarely equal the related
actual results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are outlined below.
2.17.1. Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 2.9. The recoverable
amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of estimates. Refer note
22.
2.17.2. Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant
judgement is required in determining the worldwide provision for income
taxes. There are many transactions and calculations for which the ultimate
tax determination is uncertain during the ordinary course of business. The
Group recognises liabilities for anticipated tax audit issues based on
estimates of whether additional taxes will be due. Where the final tax
outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
2.17.3. Provisions for inventory obsolescence
The Group makes estimates and assumptions regarding the value of inventory
obsolescence, these are based on the existing available information. Refer
note 16.
2.18. New accounting standards and IFRIC interpretations
(a) Standard and Interpretations early adopted by the Group
The Group and Company have not early adopted any new accounting standard and
IFRIC interpretations in the current financial period.
(b) Standards, amendments and interpretations to existing standards that are
relevant to the Group, not yet effective and have not been early adopted by
the Group
At the date of authorisation of these financial statements, the following
standards and interpretations were on issue but not yet effective but which
the Group and Company have not early adopted:
Certain new standards, amendments and interpretations issued by the
International Accounting Standards Board (IASB), and approved by the External
Reporting Board (XRB) have been published which will be mandatory for use in
future accounting periods but the Group has not early adopted them. These are
not expected to have a significant impact on the Group's financial
statements.
NZ IFRS 10, consolidated financial statements, builds on existing principles
by identifying the concept of control as the determining factor in whether an
entity should be included within the consolidated financial statements of the
Parent company. The Group is yet to assess IFRS10's full impact and intends
to adopt IFRS 10 no later than the financial period ended March 2014.
NZ IFRS 12, Disclosures of interests in other entities, includes the
disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles and other
off balance sheet vehicles. The Group is yet to assess IFRS 12's full impact
and intends to adopt IFRS 12 no later than the financial period ended March
2014.
NZ IFRS 11, Joint Arrangements, introduces a principles based approach to
accounting for joint arrangements. The focus is no longer on the legal
structure of joint arrangements, but rather on how rights and obligations are
shared by the parties to the joint arrangement. Based on the assessment of
rights and obligations, a joint arrangement will be classified as either a
joint operation or joint venture. Joint ventures are accounted for using the
equity method, and the choice to proportionately consolidate will no longer
be permitted. Parties to a joint operation will account their share of
revenues, expenses, assets and liabilities in much the same way as under the
previous standard. NZ IFRS 11 also provides guidance for parties that
participate in joint arrangements but do not share joint control. As the
Group is not party to any joint arrangements, this standard will not have any
impact on its financial statements.
NZ IFRS 13, Fair value measurement, aims to improve consistency and reduce
complexity by providing a precise definition of fair value and a single
source of fair value and disclosure requirements for use across IFRSs. The
requirements do not extend the use of fair value accounting but provide
guidance on how it should be applied. The Group is yet to assess IFRS13's
full impact and intends to adopt IFRS 13 no later than the financial period
ended March 2014.
NZ IAS 27 is renamed Separate Financial Statements and is now a standard
dealing solely with separate financial statements. Application of this
standard by the Group and Parent entity will not affect any of the amounts
recognised in the financial statements, but may impact the type of
information disclosed in relation to the parent's investments in the separate
parent entity financial statements. The Group intends to adopt NZ IAS 27 no
later than the financial period ending March 2014.
IAS 28 (Amendment), Investments in associates and Joint Ventures, provides
clarification that an entity continues to apply the equity method and does
not remeasure its retained interest as part of ownership changes where a
joint venture becomes an associate, and vice versa. The amendments also
introduce a "partial disposal" concept. The group is still assessing the
impact of these amendments. The Standard is effective for annual periods
beginning on or after 1 January 2013.
There are no other standards, amendments or interpretations to existing
standards which have been issued, but are not yet effective, which are
expected to have a material impact on the Parent or Group.
3. Segment information
The chief operating decision maker assesses the performance of the operating
segments based on a measure of adjusted earnings before interest, tax,
depreciation, amortisation and impairment (EBITDA). Interest income and
expenditure are not included in the result for each operating segment that is
reviewed by the chief operating decision maker. Except as noted below, other
information provided to the chief operating decision maker is measured in a
manner consistent with that in the financial statements.
1 Includes Investments in subsidiaries, Rakon Financial Services Ltd, Rakon
UK Holdings Ltd, Rakon Europe Limited.
2 Does not include foreign exchange gains or losses recognised directly in
sales and costs of sales.
3 Excludes intercompany receivable balances eliminated on consolidation.
4 The measure of liabilities has been disclosed for each reportable segment
as it is regularly provided to the chief operating decision-maker and
excludes intercompany payable balances eliminated on consolidation.
5 Includes Investment in subsidiary, Rakon Temex. As at 30 September 2011
Rakon Temex was amalgamated into Rakon France Ltd.
6 Includes Investment in Rakon HK Limited and Rakon Crystal (Chengdu) Co
Limited.
7 Includes Rakon Limited's 40% share of investment in Shenzhen Timemaker
Crystal Technology Co, Limited, Chengdu Timemaker Crystal Technology Co,
Limited and Shenzhen Taixaing Wafer Co, Limited
8 Includes Rakon Limited's 49% share of investment in Centum Rakon India
Private Limited
A reconciliation of adjusted EBITDA to profit/(loss) before tax is provided
as follows:
2013
($000s) 2012
($000s)
EBITDA for reportable segments 4,844 12,616
Other segments EBITDA 210 470
Depreciation and amortisation (12,116) (10,051)
Goodwill impairment (17,331) -
Employee share schemes (112) (83)
Finance costs - net (1,897) (1,547)
Non-controlling interest (977) (228)
Other non-cash items (58) (143)
Adjustment for associates and joint venture share of interest, tax &
depreciation (2,912) (2,099)
(Loss)/profit before tax (30,349) (1,065)
4. Other operating income
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
Dividend income 1 3 10,683 3,476
Rental income 20 - 20 -
Management fees/royalties received from subsidiaries - - 2,718 3,539
Government grants - research and development 5,118 5,316 3,204 3,970
Government grants - business support, China 13 592 - -
Other income 157 26 - 2
5,309 5,937 16,625 10,987
5. Operating expenses
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
Operating expense by function:
Selling and marketing costs 14,876 15,459 7,759 7,739
Research and development 14,644 14,738 5,278 6,730
General and administration 30,069 28,808 13,102 13,187
59,589 59,005 26,139 27,656
Operating expenses include:
Depreciation - inclusive of depreciation included in cost of sales 10,901
8,018 6,282 6,152
Amortisation 1,447 2,033 694 1,364
Research and development expense 16,874 15,696 5,278 6,730
Research and development taxation credit (2,230) (2,304) - -
Rental expense on operating leases 2,315 2,340 1,591 1,639
Costs of offering credit
Impairment write back on trade receivables (1) (101) - (25)
Bad debt write-offs (4) 20 (4) 1
Governance expenses
Directors' fees 380 300 380 300
Auditors' fees
Audit services for current year - principal auditors 543 594 187 180
Share registrar audit - principal auditors 3 3 3 3
Audit services - other auditors 47 55 - -
Advisory services
- principal auditors 14 105 14 105
Sundry expenses
Donations 11 7 3 3
6. Other gains/(losses) - net
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
(Loss)/gain on disposal of property, plant, equipment and intangibles (10)
1,014 53 1,057
(10) 1,014 53 1,057
Foreign exchange (losses)/gains - net
Forward foreign exchange contracts
- held for trading 268 205 373 90
(Losses)/gains on revaluation of foreign denominated monetary assets and
liabilities1 250 (626) 1,236 (1,757)
518 (421) 1,609 (1,667)
508 593 1,662 (610)
1 Includes realised and unrealised gains/(losses) arising from accounts
receivable and accounts payable. Hedge accounting is sought on the initial
sale of goods and purchase of inventory, subsequent movements are recognised
in trading foreign exchange.
7. Borrowings
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
Current
Obligations under finance leases 55 - 55 -
Bank overdrafts 6,489 3,445 6,489 3,445
Bank borrowings 22,578 - 22,578 -
Current 29,122 3,445 29,122 3,445
Non-current
Obligations under finance leases 217 - 217 -
Bank borrowings 13,500 33,500 13,500 33,500
Non-current 13,717 33,500 13,717 33,500
Bank borrowings
During the year Rakon Limited converted NZD $12,000,000 into GBP ?5,850,000.
An additional NZD $4,000,000 funds were drawn down under the revolving cash
advance facility; the total drawn is now $36,079,000 (2012: 33,500,000). The
average interest rate during the period on this facility was 5.3%. During
the year Rakon Limited renewed its facility out to 30 April 2014, at which
time its non-current bank borrowings will be NZD $13,500,000.
Bank overdrafts and borrowings are secured by first mortgage over all the
undertakings of Rakon Limited and any other wholly owned present and future
subsidiaries.
The Board has a plan to reduce debt and has restructured its banking
facilities accordingly. The debt will reduce from $40m to $30m at the end of
September 2013, with a further reduction to $26.5m by the end of December
2013 and a final reduction to $13.5m at the end of March 2014. This will be
achieved through a combination of working capital adjustments and other
structural realignments. The facility with ASB has a covenant of
Shareholders Fund to Total Tangible Assets.
The exposure of the Group's bank borrowings to interest rate changes and the
contractual repricing dates at the balance sheet dates are as follows:
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
6 months or less 12,567 3,445 12,567 3,445
6 - 12 months 16,500 - 16,500 -
1 - 5 years 13,500 33,500 13,500 33,500
42,567 36,945 42,567 36,945
The carrying amounts and fair value of the non-current bank borrowings are as
follows:
GROUP and PARENT
Carrying Amount Fair Value
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
Bank borrowings 13,500 33,500 13,500 33,500
The fair value of current borrowings equals the carrying amount, as the
impact of discounting is not significant. The fair value of the non-current
bank borrowings equals the carrying amount as interest is charged at market
rates.
The carrying amounts of the Group's borrowings are denominated in the
following currencies:
GROUP PARENT
2013 2012 2013 2012
($000s) ($000s) ($000s) ($000s)
GBP 5,850 - 5,850 -
NZD 31,989 36,945 31,989 36,945
Other Information
A. Dividends (NZX Listing Rules Appendix 1: 2.3(d))
Rakon Limited currently has adopted a policy that there will not be any
dividend payments made for the foreseeable future and surplus funds will be
used for immediate and future growth opportunities.
B. Net Tangible Assets per Security (NZX Listing Rules Appendix 1: 2.3(f))
31 March 2013 31 March 2012
Net tangible assets $000 132,063 162,787
Number of ordinary securities 000 191,039 191,039
Net tangible asset backing per ordinary security $ 0.69 0.85
C. Control gained and lost over Entities (NZX Listing Rules Appendix 1:
2.3(g))
Rakon Limited has acquired the following entities during the period:
nil
D. Associates & Joint Ventures (NZX Listing Rules Appendix 1: 2.3(h))
Rakon Limited has the following associate entities and joint venture
arrangements.
Shareholding
Centum Rakon India Private Limited 49%
Shenzhen Timemaker Crystal Technology Co, Limited 40%
Chengdu Timemaker Crystal Technology Co, Limited 40%
Shenzhen Taixiang Wafer Co, Limited 40%
The contribution of Centum Rakon to Rakon Limited's net results from ordinary
activities is a net profit after tax of $1,731,000 (prior year $386,000).
The contribution of Shenzhen Timemaker, Chengdu Timemaker and Shenzhen
Taixiang to Rakon Limited's net results from ordinary activities is a net
loss after tax of $451,000 (prior year profit $539,000).
E. Audit (NZX Listing Rules Appendix 1: 1.3(l))
The financial statements have been audited and will not be subject to any
qualification.
F. Business Changes (NZX Listing Rules Appendix 1: 1.3(m))
There have not been any major changes or trends in Rakon's business
subsequent to year end.
End CA:00236539 For:RAK Type:FLLYR Time:2013-05-23 08:57:16
